Markets bleed as rupee plummets to all-time low

The Indian rupee hit an all-time low of 64.54 on Friday and stocks fell 340.13 points on Wednesday amid strong signs of recovery in the United States (US) that is prompting global investors to withdraw money from emerging economies.

“In reaction to the RBI’s overnight announcement to increase liquidity in the system, markets opened on buoyant note but failed to hold that gain for long,” said Jayant Manglik – president retail distribution , Religare Securities.

The rupee continued to plumb new depths despite a string of measures by the Reserve Bank of India (RBI) and the government to shore up the domestic currency.

The currency recovered marginally but still ended the day at a record closing low of 64.11 to the dollar. The rupee is falling because foreign investors are selling the currency, preferring instead to plough into the U.S. market, which is showing signs of resurgence.

In a latest move attract more dollars the central bank on Tuesday eased norms aimed at offering more attractive returns on NRI deposits in Indian banks, relaxed rules making more funds for banks to lend and took steps to inject additional funds of Rs 8,000 crore into the banking system.

A sliding rupee is toxic. For a start, it means that India needs to shell out more cash to import fuel, and this in turn raises the prices of transporting goods, leading to higher inflation.

And high inflation means that the RBI will hesitate to cut interest rates, a step needed to boost economic growth. So consumers need to keep paying large chunks of their income every month towards repaying housing loans, even as the cost of food and petrol rises and the prospect of decent salary hikes recedes because the economy is struggling.